2016 Plan Contribution and Compensation Limits; Medicare COLA to Remain the Same

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In October, two newly released guidances from the Internal Revenue Service (IRS) and Social Security Administration confirm that the United States cost of living did not increase enough to warrant a cost-of-living adjustment (COLA) for Medicare or increases in compensation and contribution limits on retirement plans for 2016.

No Increase in Medicare COLA

The Medicare COLA will not be increased for 2016.  Although this was expected, the lack of an increase in Medicare COLA is troublesome due to the anticipated increase in Medicare part B premiums for an estimated 1 in 3 senior citizens.  This is the third time since 2010 that COLA has not increased at the beginning of a new calendar year.

Few Adjustments for Retirement Plan Limits

The IRS recently announced updated adjustments to dollar limitations on retirement plans and accounts, including 401(k) plans, individual retirement arrangements (IRA), simplified employee pensions (SEP), and SIMPLE plans.  However, the limitations remain largely unchanged from the amounts set by the IRS in 2015.  In Notice 2015-118, the IRS explains that contribution and compensation limits remain unchanged because the increase in cost-of-living index was not substantial enough as compared to the statutory threshold requirement that would warrant an adjustment. 

The limitation amounts that will remain unchanged in 2016 include:

  • 401(k), 403(b), Federal Thrift Savings Plan, and most 457 Plans – Elective deferral contribution limit for employees remains at $18,000.  Catch-up Contribution limit for employees age 50 and over remains at $6,000.
  • IRA – The limit on annual contributions remains at $5,500.  The catch-up contribution limit for employees age 50 and over remains at $1,000.
    • Tax Deduction for Traditional IRA contributions remain the same in terms of AGI phase out range for all categories of filers.
  • Roth IRA AGI Phase-out Range – Married filing separate remains at $0 to $10,000.
  • Annual Compensation Limit remains at $265,000.
  • SEP compensation limit remains at $600.
  • SIMPLE retirement account limits remain at $12,500.  

The limitation amounts that will increase in 2016 include:

  • Multiemployer Plans – the threshold to determine whether a multiemployer plan is a systematically important plan is increased from $1,000,000,000 to $1,012,000,000.

  • IRA AGI Deduction Phase-out Range is increased from $183,000 and $193,000 to $184,000 to $194,000, respectively, for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered.
  • Roth IRA AGI Phase-out Range is increased from $183,000 and $193,000 to $184,000 to $194,000, respectively, for persons married filing jointly.  For singles and heads of household, the range is increased from $116,000 to $131,000 to $117,000 to $132,000, respectively.
  • Retirement Savings Contribution Credit (“Saver’s Credit”) AGI Limit for low- to moderate-income workers has increased:
    • Married filing jointly – from $61,000 to $61,500 
    • Heads of household – from $45,750 to $46,125 
    • Married filing single – from $30,500 to $30,750 
    • Singles – from $30,500 to $30,750

More information can be found on the official Social Security website or on the Internal Revenue's website.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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